Top Story Compliance Related

Yesterday, the U.S. Supreme Court stripped the Securities and Exchange Commission of a major tool in fighting securities fraud in a decision that could also affect other regulatory agencies, reports AP News.

The justices ruled in a 6-3 vote that people accused of fraud by the SEC, which regulates securities markets, have the right to a jury trial in federal court. The in-house proceedings the SEC has used in some civil fraud complaints, including against Houston hedge fund manager George Jarkesy, violate the Constitution, the court said.

OFAC has announced a $538,000 settlement with Mondo TV, S.p.a., an Italy-based animation company. Mondo has agreed to settle its potential civil liability for 18 apparent violations of the North Korea Sanctions Regulations.

Between May 2019 and November 2021, Mondo caused U.S. financial institutions to process approximately $537,939 in payments for animation work Mondo outsourced to a Government of North Korea-owned animation studio. This settlement amount reflects OFAC's determination that Mondo's conduct was non-egregious but not voluntarily disclosed.

The CFPB has posted a Bureau Blog article announcing the Bureau's release of its Fair Lending Annual Report to Congress describing the Bureau's actions against unlawful discrimination and for advancing access to fair credit in calendar year 2023.

FinCEN has reported it has issued a final rule under section 311 of the USA PATRIOT Act (section 311) that severs Al-Huda Bank from the United States financial system by prohibiting domestic financial institutions and agencies from opening or maintaining a correspondent account for or on behalf of Al-Huda Bank, an Iraqi bank that serves as a conduit for terrorist financing.

On January 31, 2024, FinCEN issued a finding and notice of proposed rulemaking (NPRM) that identified Al-Huda Bank as a foreign financial institution of primary money laundering concern. As described in the finding, Al-Huda Bank has for years exploited its access to U.S. dollars to support designated foreign terrorist organizations, including Iran’s Islamic Revolutionary Guard Corps (IRGC) and IRGC-Quds Force, as well as Iran-aligned Iraqi militias Kata’ib Hizballah and Asa’ib Ahl al-Haq. Moreover, the chairman of Al-Huda Bank is complicit in Al-Huda Bank’s illicit financial activities, including money laundering through front companies that conceal the true nature of and parties involved in illicit transactions, ultimately enabling the financing of terrorism.

FinCEN is taking this section 311 action to protect the United States financial system from Al-Huda Bank’s illicit activity. Pursuant to this final rule, covered financial institutions are now prohibited from opening or maintaining correspondent accounts for or on behalf of Al-Huda Bank, and are required to take reasonable steps not to process transactions for the correspondent account of a foreign banking institution in the United States if such a transaction involves Al-Huda Bank, preventing indirect access by Al-Huda Bank to the United States financial system. This final rule also requires covered financial institutions to apply special due diligence to their foreign correspondent accounts that is reasonably designed to guard against their use to process transactions involving Al-Huda Bank.

The rule adds section 663 to 31 CFR Part 1010, effective upon publication in the Federal Register. BankersOnline has added section 663 to its 31 CFR Part 1010 pages.

The CFPB on Tuesday announced its issuance of an interim final rule with a request for public comment to amend Regulation B to extend the compliance dates set forth in its 2023 small business lending rule and to make other date-related conforming adjustments.

The interim final rule will be effective 30 days after publication of the rule in the Federal Register. Comments will be accepted within the same 30-day period.

The rule extends compliance dates by 290 days, which is the time that has elapsed between the Texas court’s first issuance of a stay last year and the Supreme Court’s decision in CFPB v. CFSA last month. Lenders with the highest volume of small business loans must begin collecting data by July 18, 2025; moderate volume lenders by January 16, 2026; and the smallest volume lenders by October 18, 2026. The deadline for reporting small business lending data to the CFPB remains June 1 following the calendar year for which data are collected. Under the interim final rule, lenders may continue using their small business originations from 2022 and 2023 to determine their initial compliance date, or instead use their originations from 2023 and 2024.

Lenders may choose to start collecting data earlier. The rule permits lenders to collect demographic data up to one year before their compliance date to test their procedures and systems. The CFPB has also updated its grace period to reflect the revised dates. The CFPB does not intend to assess penalties for reporting errors for the first 12 months of collection, and it intends to conduct examinations only to assist lenders in diagnosing compliance weaknesses, so long as lenders engage in good faith compliance efforts.

BankersOnline has updated section 1002.114 of its Regulation B pages to reflect the changes in the interim final rule.

PUBLICATION AND EFFECTIVE DATE: Published at 89 FR 55024 in the Federal Register for 7/3/2024, with an effective date of 8/2/2024 (comments on the interim final rules will be accepted through 8/2/2024).

The Federal Reserve Board has announced the execution of a written agreement between Pedcor Financial, LLC (Carmel, Indiana), Pedcor Financial Bancorp (Carmel, Indiana), Fidelity Federal Bancorp (Evansville, Indiana), and the Federal Reserve Bank of Chicago, to address capital planning, risk management, contingency funding planning, and oversight by senior management and the board of directors of United Fidelity Bank, FSB (Evansville, Indiana).

The Treasury Department yesterday reported that OFAC had sanctioned nearly 50 entities and individuals that constitute multiple branches of a sprawling “shadow banking” network used by Iran’s Ministry of Defense and Armed Forces Logistics (MODAFL) and Islamic Revolutionary Guard Corps (IRGC) to gain illicit access to the international financial system and process the equivalent of billions of dollars since 2020. MODAFL and the IRGC engage in several commercial revenue-generating activities, most notably the sale of Iranian oil and petrochemicals.

Networks of Iranian exchange houses and dozens of foreign cover companies under their control enable MODAFL and the IRGC to disguise the revenue they generate abroad that is then available to use for a range of MODAFL and IRGC activities, including the procurement and development of advanced weapons systems such as unmanned aerial vehicles. This revenue also supports the provision of weapons and funding to Iran’s regional proxy groups, including Yemen’s Houthis, who continue a campaign of reckless attacks on global shipping, as well as the transfer of UAVs to Russia for use in its war of aggression against Ukraine.

For the names and identification information of the designated parties, see the June 25, 2024, BankersOnline OFAC Update.

The Securities and Exchange Commission has announced it has updated its list of unregistered entities that use misleading information to solicit primarily non-U.S. investors, adding 24 soliciting entities, six impersonators of genuine firms, and four bogus regulators.

The SEC’s list of soliciting entities that have been the subject of investor complaints, known as the Public Alert: Unregistered Soliciting Entities (PAUSE) list, enables investors to better inform themselves and avoid being victims of fraud. The latest additions are firms that SEC staff found were providing inaccurate information about their affiliation, location, or registration. Under U.S. securities laws, firms that solicit investors generally are required to register with the SEC and meet minimum financial standards and disclosure, reporting, and recordkeeping requirements.

In addition to alerting investors to firms falsely claiming to be registered, the PAUSE list flags those impersonating registered securities firms and bogus regulators who falsely claim to be government agencies or affiliates. Inclusion on the PAUSE list does not mean the SEC has found violations of U.S. federal securities laws or made a judgment about the merits of any securities being offered.

Yesterday, the CFPB published a Bureau Blog article announcing the Bureau's approval of a new rule to address the current and future applications of complex algorithms and artificial intelligence used to estimate the value of a home. The new rule was approved last week by the OCC (and reportedly by the FDIC). The rule is to be jointly issued by the OCC, Federal Reserve Board, FDIC, NCUA, CFPB, and FHFA once approved by each of those agencies.

The Treasury Department reported on Friday that OFAC has designated twelve individuals in leadership roles at AO Kapersky Lab.

On Thursday, the Department of Commerce issued a final determination under Executive Order 13873 prohibiting Kaspersky Lab, Inc., its affiliates, subsidiaries and parent companies directly or indirectly from providing anti-virus software and cybersecurity products or services in the United States or to U.S. persons. Commerce reached this determination after an investigation found transactions involving the products and services of Kaspersky Lab, Inc. and its corporate family pose unacceptable risk to U.S. national security or the safety and security of U.S. persons, as outlined in E.O. 13873.

In addition, the Department of Commerce has designated AO Kaspersky Lab and OOO Kaspersky Group (Russia), and Kaspersky Labs Limited (United Kingdom) on the Entity List for their cooperation with Russian military and intelligence authorities in support of the Russian government’s cyber intelligence objectives. These activities are contrary to U.S. national security and foreign policy interests.

For the names and identification information of the designated parties, see the June 21, 2024, BankersOnline OFAC Update.